Notifying your employees of specific tax situations that can affect them is one of your responsibilities as an employer. The Earned Income Tax Credit (EITC) is one example of this type of situation.
The Earned Income Tax Credit (EIC) is a tax credit that is refundable for lower-income workers who are eligible. The person’s tax liability may be directly reduced through this tax credit. Even if the workers’ income is low enough that they don’t have to file a tax return, this credit can still be received.
If it’s more than the tax they owe, eligible employees may get a refund of the EIC amount. As an employer, there is where you’ll come in.
You have a responsibility to notify employees about this tax credit as an employer. The IRS particularly requires you to let the employees know who don’t have federal income tax withheld.
Employees whose wages for the year are less than a specific amount need to be notified by the employer depending on the employee’s filing status and whether he or she may be eligible for the EIC. Since this number changes each year, it’s best for you to see IRS Publication 1015 for the current year to see the current amount.
As an employer, you must notify your employees who:
Any employee who claimed exemption from withholding however doesn’t have to be notified. The information about claiming an exemption can be found on the employee’s W-4 form. They signed it when they got hired.
There are several ways for you to notify your employees. You can:
Including a notice about the EIC on the employee’s W-2 form is the easiest way to meet the notification requirement. A W-2 form is the wage and tax statement you provide in January of each year. There is a notice on the back of Copy B that you must include as well. You are also notifying the IRS of your compliance with this requirement by placing the notice on the back of Copy B.
One of the ways listed above can be used to give each employee a copy of the notice. Merely posting the notice on the employee bulletin board is not enough. What you should do is post the notice as well as make sure each eligible employee has a copy.
If you have provided employees with this notice on their W-2 or a substitute W-2 no later than the W-2 due date, January 31 of the year after the tax year, then you are in compliance with this regulation. You must notify employees by giving them the notice with their W-2 forms by January 31, 2020, if you are giving the employee a W-2 for 2019.
You are required to give them the notice by February 7 if they didn’t receive a W-2 form.
You have to provide your employees the IRS Notice 797 or a copy with this exact wording which contains an explanation on:
You may want to visit the IRS website for a list of questions and answers about the Earned Income Tax Credit. If you need more information for you to share with employees and to explain this tax credit, the IRS has them all too.
As an employer, your only responsibility is to notify your employees, that’s it. You can give them a W-4 form if they ask to make a change in withholding. There is no need for you to help an employee with the EITC application process.
CONTINENTAL TAX AND ACCOUNTING SERVICES